Why South Africa’s 2024 elections shouldn’t scare you

South Africa’s upcoming national election on 29 May 2024 is causing large amounts of anxiety, but Allan Gray says the country’s market tends to survive during periods of volatility.

Touted as the most important election since 1994, numerous polls expect the ANC to lose its majority in parliament. Question marks also surround the party’s control of the country’s two most populous provinces, Gauteng and Kwa-Zulu Natal.

Despite the fears over the election, Marise Bester from Allan Gray said that looking back at past periods of uncertainty and market performance can help provide some perspective.

Although past performance is not necessarily indicative of future performance, it can help individuals navigate turbulent times by helping them focus on the bigger picture.

Since 1994, the FTSE/JSE All Share Index (ALSI) has experienced a drawdown every year

“Markets are cyclical, and short-term volatility, which is an inherent feature of achieving real returns, also leads to fluctuating returns with no clear pattern, even during repeat events such as election years,” said Bester.

That said, there have been far more years with positive years over the last 30-year period. Only five calendar years delivered a negative return (1997, 1998, 2002, 2008 and 2018) and none of them coincided with an election year.

“New York Times bestselling author Morgan Housel captures this sentiment well, noting that the biggest economic risk is the one no one talks about, because if no one talks about it, no one is prepared for it. And if you are not prepared, the damage is amplified when it hits you,” added Bester.

“Markets and sentiment can be temporarily affected by various external dynamics, including macroeconomic and political factors and unpredictable events.”

“This is true of 2024. We are not in a typical election cycle; the outcome of the May election could drastically change many policies that could affect companies in different ways. But the same was true in 1994, and the ALSI achieved a return of 23% that year.”

Thus, although short-term fluctuations are likely to occur around the election, history shows that the long-term trajectory of the market is driven by broader economic factors and company fundamentals.

Moreover, investors who endured the tough periods and took longer-term views tend to be rewarded for their patience.

“Of course, simply focusing on the long term is not without risks; sometimes long term is longer than the time we have,” said Bester.

“And the period we need to endure may see changes and reforms, and more pain before there is recovery. It is often darkest before dawn.”

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